What Is an Irrevocable Beneficiary?

It’s common to specify beneficiaries when you take out a life insurance policy. Life insurance is a plan that provides a payout when you die. If you have a policy, the beneficiary of your life insurance plan will receive a sum of money when you pass away.

There are two types of beneficiaries you can name when you take out a life insurance policy: these are revocable and irrevocable beneficiaries. 

Irrevocable beneficiaries have the rights to your life insurance payout and cannot be removed from your policy without their consent. The terms of the contract dictate that the individual will still have legal rights to your life insurance funds even if you wish to remove them as a beneficiary.

The most common reason to name an irrevocable beneficiary on your policy is if you have a child. This ensures that your child or children will receive the death payout in the worst-case scenario. 

In some states, it’s possible for irrevocable beneficiaries to adjust the policyholder’s life insurance plan. If you want to make changes to your policy, they must be agreed upon by the irrevocable beneficiary. 

It is possible to remove irrevocable beneficiaries from a life insurance policy, but only if the beneficiary agrees to forfeit their rights to your insurance payout. This is often a complex process that requires legal expertise.

Irrevocable Beneficiaries vs. Revocable Beneficiaries

The main difference between irrevocable and revocable beneficiaries is that irrevocable beneficiaries cannot be taken off your policy unless they agree to it.

Removing an irrevocable beneficiary from your policy is complex, time-consuming, and involves potentially costly legal processes. If you have revocable beneficiaries, you can change the beneficiary or beneficiaries without their consent and you don’t need to have a reason to remove them from your policy. 

In some states, it is legal for irrevocable beneficiaries to have the power to make adjustments to your life insurance policy. If you wanted to cancel the plan, for example, you may have to get the permission of the irrevocable beneficiary to do this. 

How Irrevocable Beneficiaries Work

If a life insurance policy has an irrevocable beneficiary designation, the named beneficiary will have full rights to the policy payout if the policyholder passes away.

It is essential to understand the irrevocable beneficiary rights before you name your beneficiaries and decide whether they will be deemed revocable or irrevocable.

You have the option to name your beneficiaries when you take out a life insurance policy. You can name more than one person, and you can decide whether or not your beneficiary or beneficiaries will be irrevocable. 

If you do decide to designate an irrevocable beneficiary, you will not be able to remove them from your policy unless they agree to give up the rights to your plan. This requires legal action. 

Why Name an Irrevocable Beneficiary?

Most commonly, people who take out life insurance name their children as irrevocable beneficiaries. Choosing to designate a child an irrevocable beneficiary ensures that they will benefit financially if you die, even if your circumstances change, for example, you get divorced or remarry.

Naming your child as an irrevocable beneficiary can provide peace of mind that the child will be supported after you pass. If you were to remarry, your new spouse would not have the power to change your policy unless you also named them as an irrevocable beneficiary.

Still, there are risks. If you are married, for example, and you name your spouse as an irrevocable beneficiary, they would legally still have rights to your life insurance payout even if you were to split up.

Contingent Beneficiaries

A contingent beneficiary is not the same as an irrevocable or revocable beneficiary. This is an additional beneficiary whom you can name after designating your primary beneficiary or beneficiaries. 

The primary beneficiary will receive the payout if the policyholder dies. However, if the primary beneficiary dies before the policyholder or at the same time, the contingent beneficiary will receive the death benefit.

A contingent beneficiary can be revocable or irrevocable. As the policyholder, you decide how much of the payout goes to each beneficiary if you have more than one.